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Donate the Vehicle to Charity - You’ve probably seen or heard ads urging you to donate your car to charity. But donating a vehicle may not result in a big tax deduction or any deduction at all. A few years back, this was a popular type of charitable donation promoted by many charities. However, vehicle donations were so abused by taxpayers claiming values higher than what the vehicles were worth that Congress had to step in. The result is a number of rules that, in some cases, limit the amount of the charitable deduction to $500.
The deduction is limited for motor vehicles (as well as for boats and airplanes) contributed to charity whose claimed value exceeds $500 by making it dependent upon the charity’s use of the vehicle and imposing higher substantiation requirements.
If the charity sells the vehicle without any “significant intervening use” to substantially further the organization’s regularly conducted activities or without any major repairs, the donor’s charitable deduction can’t exceed the gross proceeds from the charity’s sale of the vehicle. Examples of qualifying significant intervening use include delivering meals to the needy or elderly every day for a year or driving 10,000 miles during a one-year period while delivering meals.
The gross proceeds limitation on a donor’s auto contribution deduction doesn’t apply if the charity sells it at a price significantly below FMV (or gives it away) to a needy individual. This exception applies only if supplying a vehicle to a needy individual directly furthers the donee’s charitable purpose of relieving the poor and distressed or the underprivileged who need a means of transportation. In this case, the fair market of the vehicle is used to determine the amount of the contribution.
Additionally, a deduction for donated vehicles whose claimed value exceeds $500 is not allowed unless the taxpayer substantiates the contribution with a contemporaneous written acknowledgment from the donee. To be contemporaneous, the acknowledgment must be obtained within 30 days of either (1) the contribution or (2) the disposition of the vehicle by the donee organization. The donor must include a copy of the acknowledgment with the tax return on which the deduction is claimed.
Acknowledgment by the donee organization must include whether the donee organization provided any goods or services in consideration of the vehicle as well as a description and a good-faith estimate of the value of any such goods or services or, if the goods or services consist solely of intangible religious benefits, a statement to that effect. Form 1098-C incorporates all of the required acknowledgment elements for the donee (charitable organization) to complete. The donor is required to attach copy B of the 1098-C to his or her federal tax return when claiming a deduction for contribution of a motor vehicle, boat, or airplane.
If you have questions about how to treat the disposition of a vehicle, please give this office a call.
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